SCRA Violations Cost Lender and Servicer

The Servicemembers Civil Relief Act affords military personnel certain protections from financial obligations such as nonjudicial foreclosures, credit card debt, student loans and mortgage payments while they are away on active duty.

Maintaining SCRA compliance is a must for financial institutions, lawyers, storage companies and other businesses across the country. However, the SCRA’s nuances can create confusion in many cases. This is why it’s important to know consumers’ active-duty military status prior to taking action.

Two institutions learned this the hard way. Reviews of practices from both companies uncovered a number of SCRA-related violations.

OCC fines Bank of America

The financial institution allegedly used abusive lending and collection practices with more than 73,000 military members’ accounts. Instead of following SCRA regulations, Bank of America allegedly had measures in place to protect active-duty servicemembers.

The violations included unsafe or unsound practices related to non-home loan compliance and unsafe or unsound practices related to non-home debt collection litigation practices, according to the OCC. In addition to its monetary penalty, the government agency also ordered Bank of America to improve its SCRA compliance and verification of active-duty military status.

“We have taken significant steps over the last several years, and will take further steps now, to ensure we have the right controls and processes in place to meet — and exceed — what is required by law and what our military customers deserve and expect,” said Andrew Plepler, Bank of America’s executive for global corporate social responsibility and consumer policy.

Know the steps it takes to ensure military members’ rights.

DOJ comes down on Navient

In addition to the Bank of America fine, another SCRA violation involves student loan servicer Navient. The Department of Justice reached a settlement with the institution in 2015 to compensate more than 77,000 service members for illegal practices under the SCRA.

The issue at hand was the 6 percent mortgage cap for active-duty servicemembers. Interest rates cannot be higher than 6 percent if the servicemember entered into the loan prior to active duty. In Navient’s case, the more than 77,000 loans did not have reduced interest rates. As a result, the DOJ and the servicer agreed to pay roughly $60 million in compensation to these military members.

“This compensation will provide much deserved financial relief to the nearly 78,000 men and women who were forced to pay more for their student loans than is required under the Servicemembers Civil Relief Act,” stated Acting Associate Attorney General Stuart Delery. “The Department of Justice will continue using every tool at our disposal to protect the men and women who serve in the Armed Forces from unjust actions and illegal burdens.”

Interest rates are capped at 6 percent during active duty.

Out of all the loans in question, a significant majority are private loans. A smaller percentage were either guaranteed by the Department of Education or owned by the Department of Education. The average check amount sent to each servicemember was $771, according to the DOJ. Some were even as high as $100,000.

This amount is based on how long the rate was above the 6 percent cap while the borrower was on active duty and how high the rate was over this cap. Furthermore, according to the settlement, Navient must pay a civil penalty to the U.S. government and repair all damaged credit histories related to this SCRA violation.

What does this mean? These two cases highlight the importance of SCRA compliance. Violations can be incredibly costly, especially if they span a significant time period due to a lack of due diligence.

For example, Bank of America’s violations dated back several years. So too did Navient’s, with problems possibly as far back as 2005.

The best course of action for any business is to understand the SCRA requirements and act accordingly. Businesses must determine every customer’s active-duty military status, and if additional rights under the act apply.

Then, a business can rest easy knowing they have protected servicemembers and will not face any compliance-related violations under the SCRA.

Attorney Roy Kaufmann serves as the Director of the Servicemembers Civil Relief Act Centralized Verification Service, located in Washington, D.C. As a recognized authority on the Servicemembers Civil Relief Act, Mr. Kaufmann has published hundreds of articles and hosted many webinars. His teachings help law firms and businesses to remain compliant with the SCRA rules and regulations so as to avoid costly fines.

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